Book Chapter

China’s Captive Bond Market

Walter, Carl, Howie, Fraser

2012

Overview

This chapter explains China's Captive Bond Market. Its bond markets have enjoyed record issuance volumes, developed standardized underwriting procedures, and allowed some foreign participation. China's beautiful market infrastructure is necessary, but insufficient to raise the bond market above its primitive stage. As a result of manipulated pricing, corporate issuers are indifferent to the choice of debt instruments; bonds or loans are the same to them. More importantly, underwriters and investors are also indifferent to this market because they cannot make money. The chapter explains why this is so. Caught up in guidelines left over from the Soviet central planning era, interest rates do not reflect true market forces, so debt valuations are distorted. China's bond markets have evolved over the past 30 years because the national budget needs to be financed; however, its tax‐collecting capacity was, and remains, too weak. The chapter also discusses the severe challenges faced by China's banks. The banks are fully exposed to both interest rate‐related and credit‐induced write‐downs in the value of their fixed income securities portfolios.

• Publisher: Wiley,John Wiley & Sons, Incorporated,John Wiley & Sons, Inc
• Subject: Bond markets / credit‐induced write‐downs / FINANCE & ACCOUNTING / foreign participation / market forces / national budget / securities portfolios / Soviet central planning era / tax‐collecting capacity / underwriting procedures
• ISBN: 9781118255100, 1118255100